The Internal Revenue Service usually does not legally prosecute people who file their taxes late. Instead, they impose consequences by assessing interest and penalties, as well as denying refunds. There are two types of penalties – criminal and civil tax penalties. Depending on the seriousness of your tax issue, the Internal Revenue Service will usually assess a civil penalty, but they can escalate to criminal penalties if warranted. So, what is a civil penalty?
If the Internal Revenue Service assesses a civil penalty, you will be fined 5% for every month you are past due up to five months after April 15th. The fines increase to 25% per month after five months. In addition, you will be charged a 1% late payment fee each month. More bad news – the interest charged on the overdue amount will continue to increase monthly as the balance owed increases each month. Interest is charged on the unpaid penalties and fees that are added to your balance. Each month that passes, you will owe even more.
The expenses of an IRS civil penalty and other fees are not a deductible item on your taxes unless it is a business tax. It is best to settle your taxes as soon as possible to eliminate the compounding effect on the amount you owe. Consider borrowing the money you need to pay your taxes. It is better to pay a little loan interest than to continue to rack up an expensive IRS civil penalty, interest and fees.
Even though you may not owe any taxes and are due a refund, the Internal Revenue Service can bring charges against you for failure to file and you will forfeit your refund.
If you have allowed many years to elapse without filing and paying the taxes due, the Internal Revenue Service can file a legal case against you. If found guilty you can be fined thousands of dollars and possibly go to jail for “tax evasion”.